Real GDP: How Good are the Numbers ?
|
| QtQ% | Annual |
| GDP | 0.15% | .60% |
| Consumption | 0.24% | .96% |
| Investment | -1.18% | -4.64% |
| Capex | -0.64% | -2.53% |
| Res. Invest | -7.45% | -26.63% |
the opinion of the markets, they aren't very ugly either. And nowhere near as ugly as was apparently feared by all and sundry. When you look at the YoY% changes they actually don't appear to be too bad. At least until you dive into them. The table at right shows the QtQ% changes and their annual equivalents. As you likely know we prefer the YoY% changes as being more revealing. So here and after the break we're going to dive in quite a bit more. Actually in two separate passes. This one looking at the time series and a follow-up, in a reasonable time, taking apart the major component changes. Cutting to the bottomline when you look at the numbers we'll say that the slowmotion slowdown appears to continue. It's when you look at the indicators of future demand that it starts to get ugly. And when you break down the component changes it gets real ugly.
Overall GDP
Let's start with an overall look at GDP, Consumption and Employment. Just looking at this chart it doesn't look so bad, does it ? Except of course for Employment which, at least to our eyes, looks to be beginning the kind of significant downturn that we've seen in past recessions. Again the difference between our interpretation of the data and the market's would seem to be a difference in understanding cycle patterns and time lags. As the economy slows consumption turns down and then GDP which leads to downturns in employment and investment. Which further lowers consumption and the cycle starts reinforcing itself. So we'll repeat - this is early days yet. The recession isn't here. But boy do the red flags look like they're going up the flagpoles all over the place. Some of which are RI continuing to fall off a cliff and Capex turning negative ! OOPs !!
The bottomline is an overall continued slowing of the economy with increasing weakness in Consumption and Investment being an increasing drag, especially of course Residential Investment. But even Capex is turning down. The indicators of futre demand, job and wage growth, are (as we've mentioned in detail before) really showing severe strains which you can expect to see in future demand decreases. And to ripple thru the rest of the economy over time as the downturn accelerates. Below you'll find more specifics on Employment, Consumption and Investment that's consistent with this view. Take a look.
Employment
Let's start by re-examining the trends in Employment using the aggregate net increase in jobs. We measure the net increase by whether or not new jobs are greater than 150K/month, our figure of merit for the breakeven level required to stay even on population and productivity growth. Aggregate employment growth is simply the running total. In the top sub-chart you can see Employment beginning to slow seriously but in the bottom Net New Jobs looks to be going over a cliff. Definitely not encouraging for the future outlook.
Consumption Demand
Our favorite indicator of future demand is the sum of the YOY% changes in Real Wages and Employment. Bearing in mind that it's early days yet, and that Employment is just beginning to tip over the cliff, this chart shows the changes in W+E. Given the return of Inflation and the resulting sharp decline in Real Wages W+E is showing a real nosedive. All those anecdotal stories in the press and backyard fence discussions you've been having are right as can be. We're starting to see serious building pressures on consumption. With, if you believe our analysis, lots worse to come. But even looking at the QtQ changes Consumption growth of ~1% is something to write home about - just not in a good sense. Mom, they say we're going up to the Line tomorrow so I'd don't know when I'll be able to write....
Investment
The other major component of future demand is Investment. Which is showing a pretty serious drop on a QtQ basis though from this chart it would appear to be holding up relatively well on a YoY basis. Both are likely correct. That is we're in a slowmotion slowdown that is ABOUT to tip over. And since Investment lags GDP which lags Consumption you wouldn't expect to see the same kind of downturn as you can see in earlier recessioins until later.